What an eventful week it has been for the GBP against the USD. After witnessing impressive gains over the past month, Sterling’s performance took a staggering turn, surging over 3% and reaching its highest point since early April 2022. It’s hard to believe that the historic lows following the Kwasi-Truss mini budget now seem like a distant memory. The speed of Sterling’s recovery has surprised many market observers, as most anticipated a substantial push against the USD later in the year, not a remarkable 10.35% recovery by July. The big question now is: will this upward trend hold?

The real traction for the Pound began early on Tuesday when both the Claimant Count Change and Average Earnings Index exceeded expectations, with figures of 25.7k and 6.9%, respectively. These positive indicators revealed an upswing and signalled that inflationary pressures will persist, postponing any imminent base rate pauses. As a result, the Pound made considerable gains against most major currencies. In contrast, the US released its latest CPI figures on Wednesday, showing a drop in Core CPI beyond what was anticipated, with CPI Y/Y reaching 3% and inching closer to the target inflation rate of 2%. This, coupled with stronger-than-anticipated GDP figures in the UK and underwhelming PPI figures in the US, has fuelled expectations of the UK potentially surpassing the US in terms of base rate, pushing the Pound to 15-month highs against the USD.

Although the Pound lost ground against several major currencies in the latter part of the week, particularly the AUD and the JPY, it will probably do little to deter buyers, considering the substantially higher levels compared to the past six months. Investors remain optimistic, as the upcoming week is not expected to bring significant market swings due to limited major data releases. However, the next release of US Retail Sales figures, scheduled for Tuesday, could be a cause for concern for the USD. If there is a major drop-off, it could intensify selling pressure on the USD, while the GBP and the Euro (EUR) are likely to see significant gains.

As we reflect on the Pound’s extraordinary recovery, it is important to keep an eye on key factors that may influence its future performance. Inflationary pressures and base rate decisions will continue to shape the Pound’s trajectory against the USD. Additionally, economic indicators from both the UK and the US, such as GDP figures, CPI, and retail sales data, will play a crucial role in determining the strength of each currency.

The recent surge in the British Pound against the US Dollar has been nothing short of remarkable. The Sterling’s recovery has exceeded expectations, reaching its highest point in over a year, driven by positive economic indicators and contrasting performances between the UK and the US. While minor retreats against other major currencies may occur, overall confidence in the Pound remains high. Market participants eagerly await upcoming data releases, with a particular focus on US retail sales figures, as they could have a significant impact on the USD’s value. As we move forward, it will be interesting to see whether the Pound’s upward momentum can be sustained or if new factors will come into play, altering the currency landscape once again.